Our marketing manager and jaci featherly

Michael A. Hitt
Texas A&M University

R. Duane Ireland
Texas A&M University

Printed in Canada
1 2 3 4 5 6 7 13 12 11 10 09

To Ashlyn and Aubrey
Your smiles are like sunshine—they brighten my day.

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Preface xiv

Name Index, I-1
Company Index, I-15
Subject Index, I-18

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Strategic Focus: Effective Vision and Mission Statements: Why Firms Need Them 19 Stakeholders 20
Classifi cations of Stakeholders 20
Strategic Leaders 23
The Work of Effective Strategic Leaders 23
Predicting Outcomes of Strategic Decisions: Profi t Pools 24
The Strategic Management Process 25
Summary 26 • Review Questions 27 • Experiential Exercises 27
Video Case 28 • Notes 29

Contents
		Monitoring 40
		Forecasting 41
		The Demographic Segment 43
		The Economic Segment 45

Capabilities 80

3: The Internal Organization: Resources, Capabilities, Core Competencies, and
Competitive Advantages 70
Opening Case: Apple Defi es Gravity with Innovative Genius 71
Analyzing the Internal Organization 73
The Context of Internal Analysis 73
Creating Value 74
The Challenge of Analyzing the Internal Organization 75
Strategic Focus: GE Builds Management Capabilities and Shares Them with Others 77
Resources, Capabilities, and Core Competencies 78
Resources 78

How: Determining Core Competencies Necessary to Satisfy
Customer Needs 104
The Purpose of a Business-Level Strategy 105
Types of Business-Level Strategies 107
Cost Leadership Strategy 108
Differentiation Strategy 112
Focus Strategies 116
Strategic Focus: Declaring War against Counterfeiters to Protect Product Integrity and Profi tability 117
Strategic Focus: Kazoo Toys: Crisp Differentiation as a Means of Creating Value for a Certain Set of Customers 119
Integrated Cost Leadership/Differentiation Strategy 120
Summary 123 • Review Questions 124 • Experiential Exercises 124
Video Case 125 • Notes 125

Summary 149 • Review Questions 150 • Experiential Exercises 150 Video Case 151 • Notes 151

7: Merger and Acquisition Strategies 186 Opening Case: Global Merger and Acquisition Activity during a Global Crisis 187
The Popularity of Merger and Acquisition Strategies 188 Mergers, Acquisitions, and Takeovers: What Are the
Differences? 189
Reasons for Acquisitions 190
Increased Market Power 190
Overcoming Entry Barriers 192

Cost of New Product Development and Increased Speed to Market 193
Strategic Focus: The Increasing Use of Acquisition Strategies by Chinese Firms as a Means of Gaining Market Power in a Particular Industry 194
Lower Risk Compared to Developing New Products 195
Increased Diversifi cation 195
Strategic Focus: Pfi zer’s Proposed Acquisition of Wyeth: Will This Acquisition Be
Successful? 196

Strategic Focus: Country Conditions Spawn Successful High Tech Firms in Emerging Markets 226
Environmental Trends 230
Liability of Foreignness 230
Regionalization 230
Choice of International Entry Mode 231
Exporting 232
Licensing 232
Strategic Alliances 233
Acquisitions 234
New Wholly Owned Subsidiary 235
Dynamics of Mode of Entry 236
Strategic Competitive Outcomes 237
International Diversifi cation and Returns 237
International Diversifi cation and Innovation 237
Complexity of Managing Multinational Firms 238
Risks in an International Environment 238
Political Risks 238
Economic Risks 240

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9: Cooperative Strategy 252
Opening Case: Using Cooperative Strategies at IBM 253 Strategic Alliances as a Primary Type of Cooperative
Strategy 255
Three Types of Strategic Alliances 256
Reasons Firms Develop Strategic Alliances 257
Business-Level Cooperative Strategy 260
Complementary Strategic Alliances 260
Strategic Focus: How Complementary Alliances Are Affected by the Global Economic Downturn 262
Competition Response Strategy 263
Uncertainty-Reducing Strategy 264

Competition-Reducing Strategy 264
Assessment of Business-Level Cooperative Strategies 265
Corporate-Level Cooperative Strategy 266
Diversifying Strategic Alliance 266
Synergistic Strategic Alliance 267
Franchising 267
Assessment of Corporate-Level Cooperative Strategies 268
International Cooperative Strategy 268
Network Cooperative Strategy 270
Alliance Network Types 270
Competitive Risks with Cooperative Strategies 271
Managing Cooperative Strategies 272
Strategic Focus: Troubles in the Russian Oil Joint Venture, TNK-BP 273
Summary 275 • Review Questions 276 • Experiential Exercises 276
Video Case 276 • Notes 277

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Market for Corporate Control 299
Managerial Defense Tactics 300
International Corporate Governance 302
Corporate Governance in Germany and Japan 302
Corporate Governance in China 303
Global Corporate Governance 304
Strategic Focus: The Satyam Truth: CEO Fraud and Corporate Governance Failure 305 Governance Mechanisms and Ethical Behavior 306
Summary 307 • Review Questions 308 • Experiential Exercises 308
Video Case 309 • Notes 310

Emphasizing Ethical Practices 366

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13: Strategic Entrepreneurship 378
Opening Case: The Continuing Innovation Revolution at Amazon: The Kindle and E-Books 379
Entrepreneurship and Entrepreneurial Opportunities 381 Innovation 381
Entrepreneurs 382
International Entrepreneurship 383
Internal Innovation 384
Incremental and Radical Innovation 384
Strategic Focus: Competitiveness and Innovation: Are We Experiencing a Paradigm Shift? 385
Autonomous Strategic Behavior 386

Induced Strategic Behavior 387
Implementing Internal Innovations 388
Cross-Functional Product Development Teams 388
Facilitating Integration and Innovation 389
Creating Value from Internal Innovation 390
Innovation through Cooperative Strategies 390
Strategic Focus: All in a Twitter about My Space in Order to Be Linked in to the Book of Faces: The Social Networking Phenomenon 392
Innovation through Acquisitions 393
Creating Value through Strategic Entrepreneurship 393
Summary 395 • Review Questions 396 • Experiential Exercises 396
Video Case 397 • Notes 397

with an effective mix of organizations headquartered or based in ■30 All-New Cases
theUnited States and a number of other countries. Many of the cases have full finan-cial data (the analyses of which are in the Case Notes that are available to instructors).

Thesetimely cases present active learners with opportunities to apply the strategic management process and understand organizational conditions and contexts and to make appropriate recommendations to deal with critical concerns.

between current research and up-to-date applications of it ■An Exceptional Balance
in actual organizations. The content has not only the best research documentation but also the largest amount of effective real-world examples to help active learners understand the different types of strategies organizations use to achieve their vision and mission.

■Access to Harvard Business School (HBS) Cases. We have developed a set of assign-ment sheets and AACSB International assessment rubrics to accompany 10 of the best selling HBS cases. Instructors can use these cases and the accompanying set of teaching notes and assessment rubrics to formalize assurance of learning efforts in the capstone Strategic Management/Business Policy course.

In Chapter 6, we explore a new strategic trend also caused by the global economic crisis. While many firms downscoped in the late 1980s and 1990s because of the perfor-mance problems caused by over-diversification, the economic recession has served as a catalyst for a new trend of diversification to help firms spread their risk across several markets (to avoid bankruptcy). In Chapter 7, we expand our discussion of cross-border acquisitions. In fact, cross-border acquisitions remain quite popular during the global eco-nomic crisis, largely because of the number of firms in financial trouble that have under-valued assets as a result. Chinese firms have become especially active, which is discussed in detail in Chapter 7 with special emphasis in a Strategic Focus segment. Chapter 8

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Instructors

Instructor’s Resource DVD (0-538-75315-3) Key ancillaries (Instructor’s Resource Manual, Instructor’s Case Notes, Test Bank, ExamViewTM, and PowerPoint®, as well as the Fifty Lessons video collection) are provided on DVD, giving instructors the ultimate tool for customizing lectures and presentations.

Available in Print, on the Instructor’s Resource DVD, or Product Support Website.

Instructor’s Resource Manual The Instructor’s Resource Manual, organized around each chapter’s knowledge objectives, includes teaching ideas for each chapter and how to reinforce essential principles with extra examples. This support product includes lecture

Video Case Program. A collection of 13 new videos from Fifty Lessons have been selected for the 9th edition, and directly connected Video Case exercises have been included in the end-of-chapter material of each chapter. These new videos are a com-prehensive and compelling resource of management and leadership lessons from some of the world’s most successful business leaders. In the form of short and powerful videos, these videos capture leaders’ most important learning experiences. They share their real-world business acumen and outline the guiding principles behind their most important business decisions and their career progression. Available on the Instructor’s Resource DVD.

PowerPoint® An all-new PowerPoint presentation, created for the 9th edition, provides support for lectures, emphasizing key concepts, key terms, and instructive graphics. Slides can also be used by students as an aid to note-taking. Available on the Instructor’s Resource DVD or Product Support Website.

Students

We express our appreciation for the excellent support received from our editorial and production team at South-Western. We especially wish to thank Michele Rhoades, our Senior Acquisitions Editor; John Abner, our Development Editor; Nate Anderson, our Marketing Manager; and Jaci Featherly, our Content Project Manager. We are grateful for their dedication, commitment, and outstanding contributions to the development and publication of this book and its package of support materials.

We are highly indebted to the reviewers of the 8th edition in preparation for this current edition:

Len J. Trevino
Washington State University

Marta Szabo White
Georgia State University

xix Finally, we are very appreciative of the following people for the time and care that
went into preparing the supplements to accompany this edition:

Charles Byles
Virginia Commonwealth University